Even a Small Condo may be subject to Specific Performance

Pre-construction Unit

Alex Lucas was a roofer and worked as a contractor for one of the companies that owned and built some residential condominiums.

Facts

agreement of purchase and sale for a small, one-bedroom residential condominium unit  

Agreement: January 11, 2015

Buyer: the Lucases

Seller: 185

Property: Unit 421, 38 Howard Park Avenue in Toronto

 595 square-foot,

 one-bedroom unit

 fourth floor of an eight-storey building

Timing: pre-construction

Price:$369,900

Deposit: $15,000 initial, but payable $1,000 per month

Alex Lucas worked for a roofing company owned by the Ribeiro Brothers the property owners and developers from 2009 until 2017, at which time he left to join a competitor.

Interim Occupancy: April 20, 2018

                              the Lucases took possession

  paid all required deposits, totalling $73,980.

February 5, 2019 – which was about two weeks prior to the scheduled closing date for the Unit – 185 sent a letter to the Lucases purporting to terminate the Agreement on the basis of the occupancy of the Unit by an employee of Alex Lucas.

On March 12, 2019,  the Seller (185) entered into an agreement to re-sell the unit to members of his own family.

On March 19, 2019,  the Lucases commenced this application against 185 seeking relief from forfeiture and specific performance of the Agreement. The application did not seek damages as an alternative to, or in lieu of, specific performance.

On April 1, they also registered a caution on title.

Decision

The matter went on for trial and the Lucases were awarded specific permanence. The Seller appealed to the Ontario Court of Appeal which confirmed the Trial Judge’s decision on 28 January 2021.

185 lost its right to terminate by declining to treat the Agreement at an end within a reasonable time following the Lucases’ alleged breach which was the apparent rental of the property to a third party.

It was important in the case that 185 offered the Unit to the Lucases on “advantageous terms” based on their friendship, Alex’s long-standing employment, and the expectation that Alex would remain a key employee for years to come. These terms, added by separate amendments to the Agreement, included the following:

(i)    a $15,000 credit toward the purchase price, $5,652.26 of which the Lucases used to pay for upgrades to the Unit; and

(ii)    the ability to stretch out payment of part of the deposit in twenty interest-free monthly increments of $1,000 payable from March 2015 to October 2016, with the balance due on occupancy.

Review of Trial Judge’s reasons

Here are some comments by the Ontario Court of Appeal:

[61]      He then considered whether the Lucases were entitled to specific performance based on three factors: (1) the nature of the property, particularly its “uniqueness” within the meaning of Semelhago v. Paramadevan1996 CanLII 209 (SCC), [1996] 2 S.C.R. 415, at para. 22; (2) the related question of the inadequacy of damages as a remedy; and (3) the behaviour of the parties: Matthew Brady Self Storage Corp. v. InStorage Limited Partnership, 2014 ONCA 858, 125 O.R. (3d) 121, at para. 32, leave to appeal refused, [2015] S.C.C.A. No. 50.

[65]      Based on the foregoing, the application judge concluded that specific performance was the best remedy to serve justice between the parties.

He ordered 185 to complete the sale of the Unit to the Lucases in accordance with the Agreement no later than February 14, 2020, with all payments to date credited toward the purchase price. In addition, the application judge declared the sale to Sofia and Andre null and void and ordered the lease with their tenants assigned to the Lucases.

They also quoted:

The Honourable Robert J. Sharpe in Injunctions and Specific Performance, loose-leaf (2020-Rel. 29), 4th ed. (Toronto: Thomson Reuters, 2012), at §7.50:

Mr. Justice Sharpe

Some cases will present more risk than others but it cannot be denied that the element of risk of error is virtually swept away if the court is able to make an order of specific performance. The innocent party receives the very thing bargained for rather than a monetary estimate of its worth.

[69]      The basic rationale for an order of specific performance of contracts is that damages may not, in the particular case, afford a complete remedy: Adderley v. Dixon (1824), 57 E.R. 239 (Ch.), at p. 240; Semelhago, at para. 21Matthew Brady, at para. 29.

In Semelhago, the Supreme Court noted that at one time the common law regarded every piece of real property as unique. However, in the contemporary real estate market, which is characterized by the mass production of urban residential housing, it cannot be assumed that damages for breach of contract for the purchase and sale of real estate would be an inadequate remedy in all cases: at para. 21.

Accordingly, specific performance should not be granted as a matter of course absent evidence that “the property is unique to the extent that its substitute would not be readily available”: at para. 22.

Therefore, a party seeking specific performance must establish a fair, real, and substantial justification by showing that damages would be inadequate to compensate for its loss of the subject property: Asamera Oil Corp. v. Seal Oil & General Corp., 1978 CanLII 16 (SCC), [1979] 1 S.C.R. 633, at p. 668.

[71] the real point of Semelhago will be lost. It is obviously important to identify the factors or characteristics that make a particular property unique to a particular plaintiff. 

The more fundamental question is whether the plaintiff has shown that the land rather than its monetary equivalent better serves justice between the parties. 

This will depend on whether money is an adequate substitute for the plaintiff’s loss and this in turn will depend on whether the subject matter of the contract is generic or unique. [Emphasis added.]

(i)           The nature of the property

[73]      In assessing whether a property is unique, courts may have regard to:

(a) a property’s physical attributes;

(b) the purchaser’s subjective interests, or

(c) the circumstances of the underlying transaction.

While physical and subjective uniqueness of property will usually be significant in cases where a purchaser – as opposed to a vendor – seeks specific performance, the types of uniqueness are not exclusive and no difference in evidential weight should be given to one form over another…

[74]      Uniqueness does not mean singularity or incomparability.

Instead, it means that the property has a quality (or qualities) making it especially suitable for the proposed use that cannot be readily duplicated elsewhere: Dodge (S.C.), at para. 60.

For example, a rising real estate market, particularly where the purchaser’s deposit remains tied up by the vendor, may indicate that the transaction could not have been readily duplicated or that other properties were not readily available at the time of breach within the plaintiff’s price range: 

Walker v. Jones (2008), 2008 CanLII 47725 (ON SC), 298 D.L.R. (4th) 344at para. 165Sivasubramaniam v. Mohammad2018 ONSC 3073, 98 R.P.R. (5th) 130,at paras. 84 and 92, aff’d 2019 ONCA 242, 100 R.P.R. (5th) 1.

[75]      The court should examine the subjective uniqueness of the property from the point of view of the plaintiff at the time of contracting: Dodge (S.C.), at para. 59.

The court must also determine objectively whether the plaintiff has demonstrated that the property or the transaction has characteristics that make an award of damages inadequate for that particular plaintiff: 

Dodge (S.C.), at para. 59; Di Millo v. 2099232 Ontario Inc.2018 ONCA 1051, 430 D.L.R. (4th) 296, at paras. 70-73, leave to appeal refused, [2019] S.C.C.A. No. 55.

[76]      While units in cookie-cutter townhouses or condominium units may be considered less unique than other forms of property, some condominiums are truly unique: 

Gillespie v. 1766998 Ontario Inc.2014 ONSC 6952, 49 R.P.R. (5th) 65, at para. 26Landmark of Thornhill, at p. 636.

Even in the case of mass-produced condominiums, the issue remains whether the plaintiff has shown, upon the consideration of all the factors, that the land rather than its monetary equivalent better serves justice between the parties.

[77]      Put another way, the specific performance analysis is not merely a search for uniqueness.

As the case law discloses, other factors such as the inadequacy of damages as a remedy and the behaviour of the parties also play a role: 

Landmark of Thornhill, at p. 636; Dodge (S.C.), at para 55; UBS Securities Inc. v. Sands Brothers Canada Ltd.2009 ONCA 328, 95 O.R. (3d) 93, at para. 100.

(ii)         Adequacy of damages

[78]      As indicated above, one other factor is whether damages would be adequate to remedy the purchaser’s loss.

For instance, courts should be reluctant to award specific performance of contracts for property purchased solely as an investment, since money damages are well-suited to satisfy purely financial interests: 

Southcott Estates Inc. v. Toronto Catholic District School Board2012 SCC 51, [2012] 2 S.C.R. 675, at paras. 40-41.

[79]      By contrast, if damages would be particularly time-consuming, difficult, or complex to compute, this may point in favour of specific performance:

Sharpe J., Injunctions and Specific Performance, at §7.220; Neighbourhoods of Cornell Inc. v. 1440106 Ontario Inc. (2003), 11 R.P.R. (4th) 294, at paras. 112-14, aff’d (2004), 22 R.P.R. (4th) 176 (C.A.), leave to appeal refused, [2004] S.C.C.A. No. 390.

(iii)        The behaviour of the parties

[80]      A final factor involves considering the behaviour of the parties and weighing the equities at play in the transaction: 

Paterson Veterinary Professional Corporation v. Stilton Corp. Ltd.2019 ONCA 746, 438 D.L.R. (4th) 374, at para. 31, leave to appeal to S.C.C. refused, 38927 (April 2, 2020); Matthew Brady, at para. 32.

A vendor’s bad faith attempt to terminate a valid agreement of purchase and sale may support an order of specific performance against that party: Gracegreen, at para. 170.

According to the appellants, the fact the Lucases now intend to sell the Unit and buy a larger home – due to their expanding family – proves that Unit 421 is only valuable to them financially and therefore is not unique: Southcott,

Adequacy of Money

[89]      First, the application judge found damages inadequate because of delay, not quantum.

He did not ignore the practice that damages generally are assessed as of the date of judgment (or trial);

he held that it would be unfair to make the Lucases wait any longer to be compensated for 185’s misconduct.

90]      As I read his reasons, especially at para. 65, the application judge made three points:

(i)   To accept 185’s position that specific performance should not be available for a breach of a contract to sell a standard condominium unit where a vendor retains control of the purchaser’s deposit would make it difficult for purchasers to mitigate their damages. They would not be able to use their deposit to acquire a replacement property;

(ii)   Even with a damages award in their pockets, purchasers such as the Lucases would still have to spend time and money pursuing their vendor, such as 185, if it did not immediately honour the judgment; and

(iii)   Finally, a suit for damages could “drag on for years”. I take the application judge to be pointing to the Lucases’ choice to bring an application, rather than an action, to obtain their remedy for 185’s breach.

Bringing an application for specific performance would “better achieve justice than requiring the [Lucases] to sue for damages,” as the application judge put the matter.[4]

I see no error in any of these points made by the application judge. Indeed, I agree with them.

[93]      Third, there was sufficient evidence to support the application judge’s finding that damages were inadequate to compensate the Lucases.

It is common ground that prices in the Toronto real estate market rose significantly over the past several years.

The evidence before the application judge was that the Unit had increased in value by about 40% between the signing of the Agreement in 2015 and 185’s purported termination in 2019.

Given that four years had elapsed between the execution of the Agreement and 185’s wrongful termination, it was reasonable for the application judge to infer that it would have been difficult for the Lucases to find a property at a comparable price, particularly when 185 had seized their deposit.  

[94]    If the plaintiff has a “substantial justification” or a “substantial and legitimate interest” in specific performance, its refusal to purchase other property may be reasonable, depending upon the circumstances of the case.

 [95]      In assessing whether the plaintiff’s refusal to purchase another property was reasonable, the defendant vendor bears the burden of proof. As the court went on to state in Southcott, at para. 45:

“[W]here it is alleged that a plaintiff has failed to mitigate damages, the onus of proof on a balance of probabilities lies with the defendant, who must establish not only that the plaintiff failed to take reasonable efforts to find a substitute, but also that a reasonable profitable substitute could be found.”

[96]      The application judge obviously found that 185 had not discharged that onus. 185’s retention of the deposit evidently played a large role in the application judge’s analysis for he noted, at para. 64, that “the [Lucases’] deposits have been provided to 185, and that money has been, and remains, tied up in the property, unavailable for acquiring another property, as the market continues to rise.” The evidence also disclosed two other impediments to reasonable mitigation: (i) the expert evidence indicated that any potential substitute property in February 2019 would have been significantly more expensive than the contract price for the Unit; and (ii) the Agreement had provided the Lucases with special advantageous terms because of their relationship with the vendor’s principals.

The Court rejected the appeal and upheld the Trial Judge. Specific Performance was awarded

COMMENT

In this case we have 4 years that ran between the signing of the contract for a pre-construction condo and the purported termination by the Builder.

The market moved up 40% over that period. It’s going to be difficult to insist on simply damages in pre-construction contracts.

Brian Madigan LL.B., Broker

www.OntarioRealEstateSource.com

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